APRIL 2011

Domestic gas - helping to drive economic growth Nigeria holds the 7th largest natural gas reserves in the world. Under the Nigeria Gas Master Plan initiative, the Federal Government of Nigeria aims to leverage this resource base to meet the ambitious target of growing the economy at 10% pa under the Vision 20: 2020 program. The Nigerian government predicts domestic demand for gas will rise fivefold to some five billion standard cubic feet a day by 2013. To meet this demand, the government has set domestic gas supply obligations for producers as well as the basis for pricing gas sold to different types of consumers. The three categories of gas consumers identified are the strategic power sector, industrial and commercial users and gas-based industries that use gas as feedstock. Nigeria has about eight gigawatts (GW) of installed electricity generation capacity, but only about three to four GW of that is currently in operation. Alongside goals to increase gas production, the government has also set targets to increase the country’s actual power generation to 14 GW by the end of 2013 and 40 GW by 2020. Much of the additional gas demand growth will therefore be needed to generate electricity. Commitment and the process for achieving these electricity generation targets have been articulated in the Road Map for Power Sector Reform. SPDC is participating actively in the reform agenda of the government and is currently at advanced stages of negotiations to supply natural gas to the power sector under the Nigerian Gas Master Plan (NGMP) new market model. A long history in gas SPDC is at the forefront of gas development and utilization in Nigeria, having pioneered the production and delivery of gas to consumers for over 40 years. In the 1960s, SPDC began supplying gas to industries in Port Harcourt and Aba territories, and to power plants at Afam in Rivers State in the Niger Delta. For most of that time until about 1998, SPDC was the sole supplier of gas in the country. Today SPDC provides about 70% of the country’s domestic gas supply, most of which is used for power generation. In 1998, Shell became the only international oil and gas company to set up a wholly-owned operational gas sales and

distribution company – Shell Nigeria Gas (SNG) Limited– to supply industrial customers in the south-western and eastern parts of the country (please refer to the briefing note on Shell Nigeria Gas for detailed information). Making progress The leading role of the SPDC JV continues to this day. Despite funding and security challenges, the company is making progress on major projects that will help boost Nigeria’s gas and power supply for years to come. For example, the SPDC JV Integrated Okoloma gas plant (with capacity to process 240 MMscf/d) and the 650 MW Afam VI combined-cycle power plant were constructed and delivered within 30 months despite very tough security challenges. In August 2008, the SPDC JV began generating electricity from the Afam VI power plant fed by natural gas from the SPDC JV’s Okoloma gas plant. The power plant began supplying over 400 MW to the national grid via the open cycle phase and recently attained a generation capacity of 620 MW through the full combinedcycle phase. This integrated project has contributed up to 20% to Nigeria’s current power supply and up to 20% to its gas supply. Gas from Okoloma also serves industrial and other users within the eastern grid network.

The large investments required to develop the Nigerian gas industry will only be forthcoming once an attractive investment climate is firmly established. SPDC will deliver some 250 million standard cubic feet of gas per day from that project. But in this publication. the collective expression ‘Shell’ may be used for convenience where reference is made in general to these companies. there remain significant challenges to gas development in Nigeria. The recently issued gas-pricing framework must be implemented to ensure investors earn a fair profit. In addition. More will still be needed.shellnigeria. This has gradually ramped up to the plant capacity of one billion standard cubic feet (1bcf/d) of gas a day – which was achieved in February 2011. and the companies in which it directly or indirectly owns investments are separate and distinct entities. including payment securities will go a long way in making the sector robust. Royal Dutch Shell plc. The Gbaran Ubie project is a key example of the SPDC JV’s commitment to gas and power development in Nigeria as well as Nigerian Content Development.Work is also progressing on the Gbaran Ubie integrated oil and gas project. led by the government. Nigeria vitally needs the associated gas distribution infrastructure. The government is developing a new oil and gas industry legislation – the Petroleum Industry Bill (PIB) – which among other things proposes new parameters affecting investments. Sustained progress in the development and implementation of solid regulatory and commercial frameworks. Phase one of the project was completed with the commissioning of the Central Processing Facility (CPF) in June 2010 with initial production of about 200 million standard cubic feet of gas a day. Shell Nigeria Exploration and Production Company Limited and Shell Nigeria Gas Limited. New pipelines will gather and fully utilize all associated gas from surrounding oil producing fields. in addition to oil and condensate production of more than 40. Security and unhindered access to project sites are necessary to develop these domestic gas supply projects. Another example is the multi-million dollar pipeline contract signed in April 2010 between the SPDC JV and Daewoo Nigeria Limited. especially onshore Niger Delta. power plants and electricity transmission and distribution networks to ensure that the additional supply of natural gas can have a real impact on the domestic economy. On completion of the project. Furthermore. We have also been working closely with the government to ensure there is an effective commercial framework to underpin the entire sector. . The contract will involve the construction of pipelines that will take gas from the SPDC JV to the domestic gas network owned and operated by the Nigerian Gas Company. as well as effective coordination. However. gas that is produced along with oil – and to reduce flaring (see separate ‘Gas flaring’ briefing note). Alongside these projects. We are keen to undertake more gas and power projects in Nigeria – so long as they are commercially viable. otherwise investment along the gas and power value chain will remain stunted. Urgent actions are needed to meet the deadlines – gas projects typically take between two and four years to come on-stream after the final investment decision is taken. Power tariffs need to be deregulated and freed from unsustainable subsidies in order to support the required power chain investment. Foundations for the future Getting the legislation (PIB) and the National Gas Master Plan (NGMP) right. are essential to attracting the billions of dollars of investment that are needed to meet government goals for gas and power. The agreement will enable the SPDC JV to supply more gas to power stations in the country. supported by appropriate legislative and fiscal rules. security concerns continue to impact delivery of gas and other projects. Inadequacy of government funding has stalled many projects designed to gather associated gas – that is. the investment climate in Nigeria needs to become clearer and more certain. SPDC and Shell Nigeria Gas (SNG) Limited both stand ready to support Nigeria in implementing its gas and power aspirations in a sustainable and commercially viable manner. More information on the operations of Shell companies in Nigeria can be found at www. Gas from the project is expected to supply the Bayelsa State government power plant at Imiringi and a new Federal Government 225MW power plant at Gbaran under the National Integrated Power Project.000 barrels a Published by Shell Companies in Nigeria: Shell Petroleum Development Company of Nigeria Limited. All this must be done in a coordinated and step-by-step manner.

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